Budgeted Operating Income Calculation at 2600 Kayaks per Month
How can we calculate the budgeted operating income at a level of 2600 kayaks per month?
What are the fixed costs, variable costs, and total revenue involved in this calculation?
Calculation of Budgeted Operating Income:
To calculate the budgeted operating income at a level of 2600 kayaks per month, we need to consider the fixed costs, variable costs, and the number of units sold.
First, let's determine the fixed costs for 2600 kayaks per month:
Since the volume is above 1100 kayaks, the monthly fixed costs are $54,000.
Next, calculate the total variable costs:
The variable cost per kayak is $400, and we are selling 2600 kayaks per month. Therefore, the total variable costs are $400 * 2600 = $1,040,000.
Now, calculate the total revenue:
The selling price per kayak is $700, and we are selling 2600 kayaks per month. Therefore, the total revenue is $700 * 2600 = $1,820,000.
Finally, calculate the budgeted operating income:
The budgeted operating income is the difference between the total revenue and the total costs. In this case, the total costs are the sum of the fixed costs and the variable costs. The total costs are $54,000 + $1,040,000 = $1,094,000.
Therefore, the budgeted operating income at a level of 2600 kayaks per month is $1,820,000 - $1,094,000 = $726,000.
Understanding Budgeted Operating Income Calculation:
When a business like Krazy Kayaks plans its operations, it is essential to forecast the budgeted operating income to determine its financial performance at different levels of production.
In this scenario, with the sale of 2600 kayaks per month, we calculate the budgeted operating income by considering the fixed costs, variable costs, and total revenue.
The fixed costs include the monthly expenses that remain constant within a certain range of production. For volumes up to 1100 kayaks, the fixed costs are $31,000 per month. Beyond 1100 kayaks, the fixed costs increase to $54,000 per month.
Variable costs, on the other hand, are expenses that vary with the level of production. In this case, the variable cost per kayak is $400.
The total revenue is derived from the selling price per kayak, which is $700. By multiplying the selling price with the number of kayaks sold, we obtain the total revenue generated.
To calculate the budgeted operating income, we subtract the total costs (sum of fixed and variable costs) from the total revenue. The resulting figure represents the expected income before taxes and other deductions.
In the case of selling 2600 kayaks per month, the budgeted operating income is calculated to be $726,000. This indicates the anticipated profitability of Krazy Kayaks at that production level.
By understanding and analyzing such financial metrics, businesses can make informed decisions and optimize their performance in the competitive market.